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Does global fear predict fear in BRICS stock markets? Evidence from a Bayesian Graphical Structural VAR model

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  • Bouri, Elie
  • Gupta, Rangan
  • Hosseini, Seyedmehdi
  • Lau, Chi Keung Marco

Abstract

We examine the predictive power of implied volatility in the commodity and major developed stock markets for the implied volatility in individual BRICS stock markets. We use daily data from March 2011 to October 2016 and employ the newly developed Bayesian Graphical Structural Vector Autoregressive (BGSVAR) model of Ahelegbey et al. (2016). Evidence suggests that the predictability of individual implied volatilities in BRICS is generally a function of both global and within the group stock market implied volatilities, and that the role of commodity market volatility is marginal, except for South Africa. Important implications for policy-makers and portfolio-managers are discussed.

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  • Bouri, Elie & Gupta, Rangan & Hosseini, Seyedmehdi & Lau, Chi Keung Marco, 2018. "Does global fear predict fear in BRICS stock markets? Evidence from a Bayesian Graphical Structural VAR model," Emerging Markets Review, Elsevier, vol. 34(C), pages 124-142.
    • Handle: RePEc:eee:ememar:v:34:y:2018:i:c:p:124-142
    DOI: 10.1016/j.ememar.2017.11.004
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    More about this item

    Keywords

    Bayesian Graphical Structural VAR; Volatility predictability; Implied volatility index; VIX; Strategic commodities; BRICS;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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